One of the most important aspects of a successful trading strategy is that it must be able to keep your capital safe when the market gets ugly. Usually, this means having some mechanism that identifies when the market gets rough and stops taking on new positions.
For the QG Fund, I use a trend filter that forbids establishing any new positions when the SPY is below its 100-day simple moving average. CANSLIM investors have their distribution day count and market outlook, which they use in a similar fashion.
The reason we have to have some form of protection is that prices are naturally inclined to move. The trends we choose to follow will all eventually come to an end.
This past year has been a great example of a long, and pretty much steady uptrend. But it is going to end at some point. No one really knows if that point is next week or three years from now, but we can all agree that there will be another bear market at some point in the future. We have to be prepared for that.
One thing I have noticed about the Amazon marketplace is that prices and trends seem to exist there as well.
Sometimes, when I scan a blue Kitchen Aid spatula, I will find it to be selling for $8.00. On other occasions, it will be selling for $12.99. I can pretty much always get them for $4.23, so when they are selling at the lower price I am just breaking even. But when they are selling at the higher price, I am doubling my money with each sale.
I have also seen trends come and go on the Amazon marketplace. When I started selling, just about any Disney Frozen toy that I could find would sell for a huge profit as soon as Amazon received it. In recent months, supply has caught up to demand, and those sales aren’t working anymore.
However, since it is now summertime, I have noticed a new trend where every bottle of sun screen that I send in seems to sell quickly.
It appears that just like in trading, Amazon sellers must identify and ride trends to be successful, all while not getting caught up in the day to day price fluctuations. The trick with both, is being about to distinguish the difference between those daily fluctuations and long term trends.